CITY A.M. reported that banks could be forced to refer small business customers on to rival bankers if they have turned down the firm’s loan application, business secretary Vince Cable said yesterday. Small firms have complained it is difficult to get credit, with some businesses becoming discouraged after being turned down several times.

As a result Cable wants the competition authorities to look into setting up a referrals system or an exchange where companies’ applications are then considered by a wider range of banks and other lenders.

New lender Metro Bank welcomed the idea, with its chief Craig Donaldson asking for more information from the minister. But Phillip Monks, head of challenger bank Aldermore said more radical action is needed, including the breakup of the bailed out banks to create more new lenders in the SME space.

Government should allow building societies to lend to small businesses

This is interesting. Mortgage Finance Gazette reported yesterday that think-tank ResPublica has published a report calling on the government to change legislation to enable building societies to lend to SMEs (small to medium size enterprises). Around a quarter of the personal finance and mortgage markets are serviced by building societies, but are almost completely absent from corporate finance. This represents a bad deal for consumers and places hard-up SMEs in jeopardy, argues the report.

The report, Markets for the Many: How civic finance can open up markets and widen access, also asks for government to allow building societies to purchase high street banks to similarly increase competition in the current account market and other banking services.

Since the financial crisis began, SME lending has fallen by more than 25 per cent, and loan rejection rates in the UK are twice that of our major European competitors, France and Germany. The report states that the funding gap between the amount of finance SMEs need and the amount they actually receive will be as high as £22 billion by 2017.

Building societies are currently restricted by the Building Societies Act on the amount of lending they can give to businesses. Current legislation stipulates that at least 75 per cent of the building societies loan book must be secured against residential property – this significantly prevents expansion into the corporate market. The ResPublica report argues that this limit should be lowered to 50 per cent and that the Prudential Regulatory Authority (PRA) should allow building societies to move into this market if ready. Building societies should also be allowed to purchase high street banks, the report argues.

Markets for the Many: How civic finance can open up markets and widen access can be downloaded from www.respublica.org.uk

Smaller manufacturers plan investment boost

The Confederation of British Industries (CBI0 say that the UK’s smaller manufacturers are planning to boost investment in the coming year, according to their latest SME Trends Survey. The survey of 335 small and medium-sized manufacturers revealed that total orders and the volume of output increased in the three months to January. Domestic orders rose, while export orders fell. However, in the coming quarter domestic and export orders are both expected to grow more strongly and production is set to rise again.

Firms increased headcount modestly, while optimism about the business situation improved for the third consecutive quarter. Meanwhile, planned investment spending on buildings for the year ahead rose to record levels and that on plant and machinery strengthened further.

Martin Pollins is a Chartered Accountant with wide experience in corporate finance and business management. He holds a number of directorships and has served on the boards of several companies, including those listed on the London Stock Exchange, AIM and OFEX.

He was a Council member of the Institute of Chartered Accountants in England and Wales from 1988 to 1996.

Martin Pollins ran his own firm based in Sussex and was the first Accountancy firm in the UK to advertise on television and Martin went on to create and launch the CharterGroup Partnership (the UK's first Accountancy network) and then LawGroup UK (one of the largest networks of lawyers in the country).

Martin started work on the Bizezia concept in 1996, developing the broad range of information resources and products over the past 18 years.

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